Hong Kong Property Stock Dive Not Enticing Enough for Eastspring

Ishika Mookerjee, Bloomberg News

Residents walk past a residential construction site in the Yuen Long district of the New Territories in Hong Hong, China, on Tuesday, July 23, 2019. A rally of more than 100,000 people in Hong Kong devolved into a night of violence on Sunday, with police firing tear gas after protesters gathered in front of China's liaison office in the city and defaced the national emblem. Masked men wearing white shirts and wielding batons, some suspected to be linked to triads, later attacked people in a metro station and mall in the mainland border town of Yuen Long.
, Bloomberg

(Bloomberg) -- Even after a plunge in Hong Kong property shares following months of protests in the city, Eastspring Investments says some of the biggest stocks in the sector remain unappealing because of their valuations.

John Tsai, a portfolio manager in Singapore, trimmed his holdings of Henderson Land Development Co. and Sun Hung Kai Properties Ltd. in July, and remains underweight on the sector. He cited expensive valuations and lower dividend yields relative to their peers and other sectors such as telecommunications.

“My view on Hong Kong property stocks is still cautious,” said Tsai, who manages almost $1 billion in Hong Kong equities and shares of Chinese companies listed in the city. “We are more value-biased and tend to focus on ‘cheaper’ stocks that seem to be overly beaten up and not appreciated.”

The pro-democracy protests that started in June have dented business at the biggest developers in Hong Kong. Used home prices have slid about 1% since mid-June, data from Centaline shows. Sun Hung Kai Properties, the city’s No. 1 builder, is offering new homes at a discount to entice buyers during the political crisis.

Henderson Land and Sun Hung Kai Properties are currently trading at a forward earnings multiple of 11 and 9.4 times respectively for 2020, while the Hang Seng Properties Index is at 8.9 times for the same period. The two stocks offer dividend yields of less than 5%, which has prompted Tsai to turn to telecommunications-related stocks for greater income.

In recent weeks, the fund manager has increased his holdings of Lifestyle International Holdings Ltd. and PCCW Ltd. that are yielding 8% and 7%, respectively.

“We prefer quality defensives versus traditional defensives such as healthcare where the valuations are too high,” said Tsai.

--With assistance from Shawna Kwan and Abhishek Vishnoi.

To contact the reporter on this story: Ishika Mookerjee in Singapore at imookerjee@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Teo Chian Wei